Do 1.7 million people pay 80% of SA’s income tax?

The deputy CEO of a South African non-governmental organisation recently tweeted that close to 80% of personal income tax is contributed by 1.7 million individuals. But, as with most things to do with tax, the truth is not that simple.

The South African Revenue Service's head office in Pretoria. Photo: SARS

The deputy CEO of AfriForum, a non-governmental organisation which seeks to protect “the rights of minorities”, with “a specific focus on the rights of Afrikaners”, outlined a “tragic truth” in a recent tweet.

“In South Africa, about 1.7 million people (roughly 3% of the population) pay about 80% of income tax,” Ernst Roets tweeted. At the time of publishing, the tweet had been retweeted close to 200 times and liked 155 times.

The report aims to “present comprehensive tax revenue data in a manner that will complement and help contextualise economic and demographic data provided by other publications”.

The latest version highlights that R389.3 billion in personal income tax was collected by the revenue service in 2015, out of a total of R1.07 trillion tax.

Only reports on 71.9% of personal income tax

The document, however, only reports on 71.9% of the total collected personal income tax (or R239 billion of personal income tax). This tax is called “assessed tax”.

SARS media executive Sandile Memela explained that assessed income tax refers to the tax paid by individuals who submit income tax returns and pay provisional tax.

Provisional taxrefers to tax on income earned from anything other than “remuneration, an allowance or advance” as described in the Tax Act.

Memela told Africa Check that taxpayers who have “alternative income streams such as rental or investment income” have to register as provisional taxpayers. They are then required to pay tax upfront in the form of provisional payments twice a year.

Pay-as-you-earn (PAYE) refers to the tax that is deducted from employees’ salaries and employers then pay to SARS.

The figure reported in the tax statistics publication does not include all income tax paid to SARS.

‘In principle, the figures are reasonable’

Assessed taxpayers owed SARS R268.5 billion for 2015. There were 1,821,394 individual taxpayers who earned more than R250,001 per year. These individuals collectively contributed R239.2 billion (89%) of assessed income tax that year.

But, as explained above, this total excludes taxpayers who paid income tax through PAYE but are not required to submit a tax return for assessment.

Deborah Tickle is a tax partner with auditing firm KPMG and a member of the Davis Committee, a body established to “assess South Africa’s tax policy framework”.

She told Africa Check that verifying a claim like this is difficult as “the source and date that the numbers were derived [from] are not provided. However, in principle the figures are reasonable.”

Budget review data ‘far more user-friendly’

These figures are “far more user-friendly,” Lester noted, as they consider all taxpayers and not just assessed taxpayers as is the case with the annual tax statistics report.

The most recent budget review is for 2017/2018 and shows that just over 1.9 million registered taxpayers are estimated to contribute just over 80% of income tax.

In 2016/2017, just over 1.7 million taxpayers were estimated to have contributed 78% of taxes, closer to Roets’ claim.

While these figures are estimates of expected tax revenue, Lester noted the process of collecting tax returns for assessment can be lengthy.

“That’s why it’s better to work with the estimates and what they ultimately expect to receive, as per [national treasury] numbers” Lester added.

Ingrid Woolard, dean of the commerce faculty at the University of Cape Town and fellow member of the Davis committee, added that SARS’ assessed tax data “doesn’t actually tell us anything about the number of people that pay tax nor about the number earning more than R350,000 [annually]”.

Each dataset has limitations & drawbacks

Christopher Axelson, ‎a director at national treasury in the personal income taxes and saving division, told Africa Check that while both datasets could be used to check a claim like this, each comes with its own set of limitations and drawbacks.

Budget review data “shows a more complete view of the taxable income distribution, but is only an estimate and actual changes in the distribution may have been different in practice,” Axelson told Africa Check.

“The SARS data illustrates final tax collections, but only indicates this for individuals who filed an assessment,” Axelson said and added it is therefore “an incomplete view of the distribution”.

Conclusion: The claim is mostly correct

To provide an accurate fact-check, it is essential to know the source and timeframe considered. Without these, the fact-checking process is made more difficult.

SARS and treasury officials, together with consulted experts, directed Africa Check to annual tax statistics and budget review data as the best tax-related information. But both data sources have limitations.

While the latest tax statistics fall close to Roets’s claim (namely, 1.8 million individuals contributed 89% of income tax), these figures aren’t inclusive of all taxpayers.

Treasury budget review data for 2016/2017 is in the same ballpark (1.7 million taxpayers contribute 78% of income tax) and takes into account all taxpayers, but these figures are estimates. The latest treasury estimates show 1.9 million individuals are expected to contribute an estimated 80% of income tax.

Given that the claim requires clarification, we rate it mostly correct.

Comment on this report

I have lost all faith in Africa Check after reading this article. Even though the fact was checked to be correct, you still make deliberate errors and try to sway the attention of the reader. In the headline it is reads 1.7m pay 80%. Hidden in the text you say 1.7m pay 78% for 2016/17 (that means the statement was correct, not mostly correct), then you attempt to overshadow it with 2017/18 (bear in mind this was published in March 2017)that shows 1.9m pays 80%. And lastly you misquote Roets (again…) as saying 1.7m pays 89% (trying to soften the blow here?).

Roets is 100% correct in his statement. You have an ideological agenda. Thank you for opening my eyes, I will now be signing up at AfriForum.

You forgot to compensate for the fact that a lot of these “tax payers” are government employees, who in turn are paid -with- tax.

They should be excluded, as paying tax with tax has no net benefit to the fiscus, and therefore the actual quantity of real tax payers is far lower. (We have at this point over 2.1 million public sector employees)

you also fail to take into account that the total number of registered tax payers is shy of 14 million, for example my wife who earns less than 350k per annum is not included in the 1,7m tax payers but she contributes roughly 14% of her salary as tax and I am assuming that the a large number of the 13 million registered tax payers fall in the sub 350k but above 100k per annum who combined contribute substantially higher than the 1.7m 350k+ tax payers.

What I also find misleading is when percentages are applied across racial groups. We all know that majority of whites are middle class and above. And when this is compared to the TOTAL black population it shows a huge disparity of earnings.

However… I have yet to see actual population numbers used in comparison. For example how many whites earn 250K pa and above compared to how many black earn 250K and above?

My guess is that probably three times as many blacks than whites fall into this category… and this would shift the white elite myth (allegedly). It would also shift focus away from the populist racial debate and rhetoric that whites earn more than blacks.

This is an aspect that Africa Check needs to address… for the sake of absolute fact.

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For democracy to function, public figures need to be held to account for what they say. The claims they make need to be checked, openly and impartially. Africa Check is an independent, non-partisan organisation which assesses claims made in the public arena using journalistic skills and evidence drawn from the latest online tools, readers, public sources and experts, sorting fact from fiction and publishing the results.